March 2 (Bloomberg) -- Federal Reserve Chairman Ben S.
Bernanke didn’t rule out expanding the central bank’s asset
purchases aimed at stimulating the economy, saying he doesn’t
want to see the U.S. relapse into a recession.

Asked at a House Financial Services Committee hearing today
what conditions would warrant a third round of so-called
quantitative easing, Bernanke said that “what we’d like to see
is a sustainable recovery. We don’t want to see the economy
falling back into a double dip or to a stall-out.”

Bernanke’s testimony today and yesterday signaled that he
will keep the Fed on course to complete $600 billion of Treasury
purchases through June under the second round of quantitative
easing, a policy criticized by Republican lawmakers as risking
an inflation surge. He’s avoided saying what the central bank
may do after that.

A third round of purchases “has to be a decision” of the
Federal Open Market Committee, and “it depends again on our
mandate” for stable prices and maximum employment, Bernanke
said in response to Texas Representative Jeb Hensarling, the
House panel’s vice chairman and a critic of QE2.

“We’re looking very closely at inflation both in terms of
too low and too high,” Bernanke said during the second day of
semiannual testimony on monetary policy. “I want to be sure
that you understand that I am very attentive to inflation and
potential risks for inflation. That will certainly be a major
consideration as we look to determine how to manage this
policy.”

Beige Book

Separately today, the Fed said in its regional Beige Book
survey that the labor market improved throughout the country
early this year, driven by increasing retail sales and “solid
growth” in manufacturing.

Overall, the economy “continued to expand at a modest to
moderate pace,” the central bank said in Washington. Eleven of
the Fed’s 12 regional banks, including San Francisco and
Philadelphia, described their regions as expanding, improving or
experiencing moderate growth. Only Chicago reported growth “at
a pace not quite as strong” as before.

The Standard & Poor’s 500 Index rose 0.4 percent to
1,311.66 at 2:45 p.m. in New York after climbing 0.6 percent
earlier.

Treasuries declined after a report earlier today showed the
pace of employment growth is picking up before the Labor
Department issues February jobs data March 4. The yield on the
10-year Treasury note rose to 3.46 percent from 3.39 percent
yesterday.

‘Extended Period’

Responding to a question from Representative Nydia
Velazquez, a New York Democrat, Bernanke said the Fed’s policy
of keeping its benchmark rate near zero for an “extended
period” helps provide support to the economy, “which in our
judgment, it still needs.”

“The economy’s recovery is not firmly established, and we
think monetary policy needs to be supportive,” he said.

The second round of bond buying follows a $1.7 trillion
first round of purchases of mortgage-backed debt and Treasuries.

Since August, when Bernanke signaled the Fed might buy
securities to stimulate the economy, “downside risks to the
recovery have receded, and the risk of deflation has become
negligible,” he said in testimony this week.

Many of the questions Bernanke fielded dealt with the
outlook for the federal budget deficit, giving the Fed chief an
opportunity to reiterate his call for Congress to come up with a
long-term plan for reining in the national debt. Bernanke’s
statements resonated especially with House Republican lawmakers.
The House passed a bill last month cutting $61 billion from 2011
government spending.

Debt, Deficit

“QE2 has given us some opportunity to act on our debt and
deficit, and we have not taken advantage of that,” panel
Chairman Spencer Bachus, an Alabama Republican, said during
today’s hearing. “Any criticism directed at the chairman, you
need to also sort of point that finger back at yourselves.”

Bernanke got caught up in a debate over the extent to which
House spending cuts would result in job losses. He told
lawmakers the reductions may lead to about 200,000 fewer jobs
over the next couple of years. That compares with the prediction
of Mark Zandi, chief economist at Moody’s Analytics, that the
budget reductions would mean 700,000 fewer jobs in the U.S. by
the end of 2012.

Last week, the Commerce Department reduced its estimate of
fourth-quarter growth to a 2.8 percent annual pace. Consumer
purchases rose at a 4.1 percent pace, the most since the same
three months in 2006, compared with a 4.4 percent rate
originally estimated.

Closely Monitor

Inflation is likely to remain low through 2013, Bernanke,
57, a former Princeton University economist, said in Senate
testimony yesterday.

“We will continue to monitor these developments closely
and are prepared to respond as necessary to best support the
ongoing recovery in a context of price stability,” he said.

At the same time, the labor market “has improved only
slowly,” and it may take “several years” for the unemployment
rate to reach a “more normal level,” he said. “The housing
sector remains exceptionally weak,” and “slow wage growth” is
keeping labor costs in check, he said.

A report yesterday showed U.S. manufacturing accelerated in
February to the fastest pace since May 2004. The Tempe, Arizona-based Institute for Supply Management’s factory index increased
to 61.4 from 60.8 a month earlier. Readings greater than 50
signal growth.

The Fed’s preferred price gauge, which excludes food and
fuel, rose 0.8 percent in January from a year earlier, matching
December’s year-over-year gain, the lowest in five decades of
record-keeping. Fed officials aim for long-run overall inflation
of 1.6 percent to 2 percent.